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How Can I Get Cash for Doing a Short Sale?

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hand with keys handing cash in front of short sale sign

There are legitimate ways to get cash in exchange for doing a short sale.

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Question: How Can I Get Cash for Doing a Short Sale?
A reader from California asks: "My buddy says his bank paid him $25,000 to do a short sale. Let me tell you, I could sure use $25,000. I'm in debt up to my eyeballs. I owe twice as much as my home is worth. My home is about as underwater as they come. I'd like to dump it and move out of this God-forsaken state. How can I get cash for doing a short sale?
Answer: When short sales started creeping back into real estate sales in 2005, many sellers asked how they could make money from a short sale. Contrary to popular belief that sellers can't profit from a short sale, there are actually a few ways that sellers can get paid to do a short sale. Not all of them are legal.

If you are in doubt as to whether payment to you is legal, make sure the payment you receive is reflected on your HUD-1. Most sellers get into trouble with short sale fraud by deceiving a lender or withholding information from a lender. As long as the money you receive is noted on the HUD, then you're relatively safe.

Getting Cash for a HAFA Short Sale

The best known cash incentive program for a short sale is a HAFA short sale. This is a government program: Home Affordable Foreclosure Alternatives. It is part of the Pres. Obama Making Home Affordable Program, except for the way it is making your home affordable for somebody else, just not for you.

If your lender participates in HAFA and you qualify for HAFA, then you could receive up to $3,000 at closing. I suspect that many banks build the $3,000 cushion into the sales price, so a buyer pays a little bit more for the home, to put that extra money into a seller's pocket.

I know this because I once received approval on a Bank of America short sale that was supposed to be a HAFA and was processed by mistake as a regular short sale. I noticed the relocation incentive was missing from the worksheet counter, and it did not reference the HAFA program. When we finally received approval for HAFA, the sales price was $3,000 higher. So, buyers of a HAFA short sale beware, you might be paying the seller's relocation fee.

The rules for a Fannie Mae HAFA short sale are different. But a Fannie Mae HAFA short sale, providing it makes it to the short sale closing and beats the foreclosure deadline, pays up to $3,000 to the seller as well.

It is also possible to get $3,000 through a Freddie Mac HAFA short sale, but this type of short sale requires preapproval in advance. You cannot submit an offer to the bank prior to approval for a Freddie Mac HAFA short sale.

How to Get Cash for an FHA Short Sale

If your loan is an FHA loan, you might qualify for an FHA short sale. FHA short sales are known as a preforeclosure sale, and they are typically preapproved by HUD. The bank will appraise your home and agree to do a short sale providing you receive an offer that nets HUD a minimum of 88% of appraised value.

The cash incentive paid to a seller varies and depends on the type of loan, the seller's financial situation and the guidelines inherent in the portfolio, among other unknown factors. I have seen cash incentives paid to sellers that range from $750 to $1,000, but it doesn't mean a seller might not receive more. Agree to leave the home in good condition and close on time are the two main requirements.

Chase Bank Pays Cash Incentives for Certain Short Sales

It would appear that Chase Bank pays cash incentives for old Washington Mutual loans. It is rumored that payments are made because of a lawsuit against Washington Mutual but I have not called Chase Bank to confirm the rumors. That's because I don't believe a spokesperson for JP Morgan Chase would confirm nor deny this rumor.

Payments to Chase Bank customers range from a few thousand to $25,000 to $35,000 and possibly more since there is really no way to track this data. If your original loan was with Washington Mutual, you have a financial hardship and you are upside down, it's certainly worth it to apply for a short sale in hopes of receiving a cash incentive.

Wachovia Bank Pays Sellers To Complete a Short Sale

If your mortgage is a Wachovia Bank loan or an original Golden West Financial or World Savings, you are a prime candidate to receive a cash incentive. Although Wachovia Bank is now owned by Wells Fargo Bank, it continues to pay sellers for short sales, providing certain criteria is met. For example, in a Wachovia short sale, the bank might insist that the seller close by the contract date to earn the cash bonus, which ranges from $1,000 to $7,500.

Litton Loan Servicing Pays Select Seller Incentive for Short Sales

Litton Loan Servicing takes a proactive approach. Litton has been sending letters to prospective candidates for short sales, offering an incentive in the letter. This cash payment varies and can be as much as $5,000, but sellers need to comply and follow every guideline set forth in the letter.

Citimortgage Offers Seller Incentive for Short Sales

A seller in San Diego reports being offered $35,000 by Citimortgage to do a short sale. This is not a case in which the seller had thought about a short sale. Citi contacted the seller directly by mail. If you see a letter from Citimortgage in your mailbox, do not throw it away.

Bank of America Rolled Out a Cooperative Short Sale Program That Pays Sellers

Bank of America also wants to clean out is inventory of underwater homes. Out of all the banks that approve short sales, Bank of America is one of the best for implementing innovative systems. The Bank of America Cooperative Short Sale pays sellers up to $2,500 to do a short sale and, in most instances, requires only a financial hardship letter.

Short Sale Cash Incentives for California Residents

The California TAP (transition assistance program) pays California residents up to $5,000 to do a short sale. To qualify, a seller must meet income restrictions and the seller's lender must participate in the TAP program. It is part of the Keep Your Home California Program, which has nothing to do with keeping your home.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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